“While pessimists sound like they’re trying to help you, optimists sound like they’re trying to sell you something.”
– Professor Steven Pinker, Harvard University
In the age of 24-hour news networks, great political division, and what seems like a devolving level of discourse – it’s easy to feel down about forward looking prospects today. Whether your candidate just won or lost may feel like a beacon of hope or dark cloud is looming. Business for many Americans has been disrupted in a major way in 2020, with some thriving and others faltering as a result of protocols and changes in consumer behavior and even the simple facts about how business is conducted. It would be easy to feel unsettled right now.
In financial services, times like this make it easy to sell products that are rooted in fear. The two products that seem to get sold hardest during these periods are precious metals like gold and silver, and annuities that can insure against market losses. While there are totally legitimate reasons that you may own either commodities or an annuity, considering them in an emotionally charged state is likely to lead to less-than-desirable outcomes.
What makes this so tempting is that it’s not illogical at all. If you become convinced that a crash is coming you’d be silly to sit in equities, right?
As long-term minded investors, we like to think of ourselves as rational optimists. Our base perspective, similar to what Professor Pinker teaches, is that our world is generally improving. Technology is making huge leaps in many fields, computing power that was once unthinkable is now at our fingertips, and our standard of living continues to expand in a big way. Our chosen path isn’t ever to say the crash isn’t coming – we essentially assume it always is. But we also believe in the power of innovation, patience, and prudence to overcome it.
Make no mistake about it, as a human you are hard-wired to have trouble with this mindset. In fact, we would argue many of the same instincts that have kept us alive as a species are the same ones that make patient investing difficult. We learn at a young age to avoid things that hurt us. Putting a hand on a hot stove burns, we should avoid it. If we see a dangerous animal, we should keep a distance and get away from it. When we start seeing red on our investing statements, that same fear response that has kept us alive kicks in. Get your hand off the hot stove; get away from that bear.
Investing is done best with the opposite response. In times of market turmoil we are often served best by adding to our risk assets, or at the very least just leaving them alone. We want to get ourselves out of harm’s way, and instead we should be running towards it or simply waiting for it to pass. One of the world’s oldest and most quoted adages is “Buy low, sell high.” But in practice it’s the hardest to execute.
This is all situational of course, and it starts by not painting yourself into a financial corner before the turmoil starts. If your investment allocations are too aggressive for your situation, you might end up in a spot where you are forced to sell into a bad market simply for liquidity needs. Similarly, if you maintain a risk-on position too close to your anticipated retirement, you may need to keep working simply to give your portfolio time to recover.
Rather than putting yourself in a position where the late-night gold salesman starts sounding like the smartest guy on TV, we recommend getting a second look at your portfolio when cooler heads are prevailing. Make sure your assets are actually in alignment with your plans.
We would encourage you to Book a Consultation if you are concerned about whether you’re positioned correctly. One of the financial planners at Craftwork Capital would be happy to help you evaluate whether our practice capabilities are a good fit for your needs, and make sure your portfolio is set up for the peace of mind that you deserve.